Owner of Three is going to buy O2 and change the UK market

It was only a month ago we were looking at one of the UK’s networks being bought, now we have another!

The group that owns and operates the mobile company Three (Hutchison Whampoa) has announced their plan to buy Telefónica owned O2 for a reported £10.25 Billion.

Given that O2 was one of the other companies that BT were looking to buy, it seems that the interest generated has been enough to spur the Hutchinson group to get involved.

The £10 Billion bid has been put forward and should all the legal parties involved agree, will see the UK become a three network country before the year is out.

With that in mind, it’s important to consider what this will mean for customers. In the space of four years we will have shifted from five dedicated networks to just three. In this time, there has been a shift in the amount of ‘piggy-backing’ networks. Tesco Mobile uses O2, Sainsburys Mobile uses Vodafone and Virgin Media use EE. In to this sub-network party, smaller operators like Giff-Gaff rent their access to the networks from the main suppliers and tend to use them to support their existing customer offerings. That’s why Sky in the UK is in talks to launch their own mobile service on the O2 network.

Why is all this happening?

The answer is simple: Data.

Historically, the money maker in the mobile phone business was, phone calls. Networks were able to charge huge amounts, which was useful, as expanding coverage and building a backbone for this new service was (and still is) expensive. As the years and technology marched on, SMS became the new money spinner. Those readers of a certain age will remember the days where a 90 character message would cost 12p to send to a friend.

As the rate of development got to speeds that the networks were struggling to keep up, a plucky up-start company entered the fray in the year 2002, Three (formally, just the number 3).

The 3 stood for 3G. That was the whole selling point behind the network, that they were bringing the mobile internet to the masses. With phones from Japan and Korea, that were capable of making video calls, 3 made a big splash. It took them quite some time to become established, but as the smallest independent network in the UK they were entitled to spectrum that helped establish their service. In the 4G auction, Three had spectrum set aside for them as mandated by the government to maintain a competitive market. That spectrum just so happens to belong to Vodafone.

All the while the other networks started to invest in mobile internet. WAP beget, GPRS beget, EDGE beget, 3G beget, HDPSA beget, LTE. Each investment in a new, faster technology brought with it the cost problems that had been faced with phone calls some 30 years hence. In 2007, Apple changed the entire industry and from 2008 onwards, the march of the smartphone has been unstoppable.

This is a problem for the networks.

If you look at modern mobile contracts, the theme across all suppliers is; Unlimited calls, Unlimited texts and a set amount of data. That data is where the money is made and also spent. 4G contracts 500MB per month to 20GB exist across the networks and data is what dictates price point.

With the relentless desire for data the networks are struggling. ‘Not-spots’ are commonplace in the UK and each network is deploying it’s own solution, so that they don’t have to allow national roaming, allowing customers to jump network across the country. Rather than doing that, they are teaming up. EE going to BT will allow EE to access the spectrum that BT bought in the 4G auction and thus have better coverage. Three will combine their spectrum allowance with O2’s to create an even larger network with more support for the frequencies used for data.

Lastly, this leaves Vodafone. Formally the UK’s largest network with the most customers and the best coverage. In the space of 3 years, all of this has been stripped from them. Now Three will be taking some of their spectrum to a competitor and EE/BT will account for over 26 Million customers.